Paine & Partners is one of few private equity firms focused 100 percent on food and agriculture globally. It developed this focus over 20 years of generalist private equity investing. Here, Kevin Schwartz, president at the firm, talks about the opportunities presented by consolidation in the industry. Schwartz will be speaking at next week’s Agri Investor Forum in Chicago.
Paine & Partners was a generalist PE firm initially. When did you take on the food and agriculture focus?
Food and agribusiness has always been a sector of focus and we have invested more than $1 billion of equity in the industry. My partner, Dexter Paine, first invested in seeds in 1992 and I grew up in a family working in the agribusiness industry. We invested a third of our Fund II (2001 vintage) and two-thirds of our Fund III (2007 vintage) in the sector. During the last five years we have been focused only on food and agribusiness and our Fund IV (2014 vintage) will be invested solely in the sector.
Which part of the value chain is most interesting?
We have always been a thesis-driven, proactive investment firm and have done our own primary research on segments of the food and agribusiness value chain for more than a decade. Our primary focus has been, and continues to be, on increasing productivity and this typically has us focused on the upstream parts of the value chain, close to the farmer. Products and services that increase yield, reduce waste or otherwise positively impact production such as seeds, plant nutrition, irrigation and equipment are key areas of interest for us. Other value chain segments that we find interesting for investment are speciality crop production, seafood and value-added processing.
What strategies do you pursue?
We are business builders and often pursue what private equity guys call “buy-and-build” investments. Our Verdesian investment in plant nutrition started as a concept we developed through our internal deep-dive process and our first acquisition was of a company with $2.5 million of EBITDA. Two years later, through a series of subsequent acquisitions and organic growth, Verdesian today is a company generating EBITDA of more than $55 million. We also frequently seek to partner with family-owned businesses to help them execute and finance growth strategies. We have historically invested in public-to-private transactions, restructurings and are comfortable rolling up our sleeves to deal with whatever complexity is necessary.
What are your views about the wealth of consolidation in the industry and the potential for vertically-integrated agribusinesses?
We see a landscape with a lot of small and mid-sized companies that could benefit from consolidation and the access to capital, technology and expertise involved. This creates a lot of interesting investment opportunities for us particularly in buy-and-build strategies. In many cases, the owners of these smaller companies become shareholders alongside us in the broader investment strategy. This both aligns interests and offers the owners a chance for a “second bite at the apple”.
Vertical integration makes sense to us in some segments and not in others. For example, we are pursuing a vertical integration strategy at Eurodrip, our portfolio company in drip irrigation, through the acquisition of key technologies upstream and downstream of the basic pipes and drippers we sell. Another of our investments, Costa, Australia’s largest fruit and vegetable company, is vertically integrated as a producer, marketer, and distributor of its products. It also owns and develops leading varieties of its produce and manages the cold chain to get its products to market.